As the twenties roared in Rolls-Royce resumed car production and introduced several key models. In 1921 the company opened its first factory in the United States. Throughout the decade both the car and aero divisions flourished, with Rolls-Royce's 'R' engine winning the prestigious Schneider Trophy.

In 1929 Rolls-Royce developed the 'R' engine to power Britain's entry in the Intercontinental Schneider Trophy seaplane contest. Royce reputedly sketched its design in the sand at West Wittering with his walking stick. The RR-powered aircraft went on to not only win the contest but also establish a new world air speed record in the process. It was this engine that would ultimately be developed into the legendary Merlin, which powered allied aircraft such as the Spitfire, Hurricane, Lancaster and numerous other planes.

The aptly named Rolls-Royce 20 HP, also known as the 'baby' Rolls-Royce, was launched in 1922. Aimed toward owner-drivers it became popular with the burgeoning professional middle classes of doctors, solicitors and businessmen. Its engine was a straight six-cylinder with a capacity of 3,127 cc and had a maximum speed of 62 mph.

In 1925 the Silver Ghost was replaced by the "New Phantom", which was later known as Phantom I. The last batch of Silver Ghosts was built in 1927 as armoured car chassis for the Russian Trade Delegation "ARCOS".  The Phantom was built both in the UK and in a new factory in Springfield, Massachusetts.